Takeaways from Our Conversation on More M&As, Cannabis ‘Frappucinos’ on Tap for 2022

New Frontier Data, a producer of cannabis research and intelligence, released its “22 for 22 Report,” in January, which imparts a definitive air of optimism mixed with few cautions for the industry posed by potential economic headwinds – as well as a sprinkle of cannabis “Frappucinos” to slake soaring consumer demand with “a broadening portfolio of product options.”

The research, which can be downloaded from the company’s website, has a definitive air of optimism. It proclaims:

“New key adult-use markets are poised to officially launch regulated sales in the U.S. (New York, New Jersey, and Virginia) and the seeds of full adult-use cannabis have been planted in Europe in Germany, Luxembourg, and Malta. Globally, interest in the therapeutic applications for cannabis has never been higher, and as the pandemic extends into its third year, cannabis consumer demand is soaring as consumers discover a broadening portfolio of product options.”

The report also offers a dose of the hard realities that any business sector faces: Economic headwinds, uncertainty, regulatory hurdles, taxes – all a potential drag on investing.

Of particular interest was the prediction, that further legalization in Europe will benefit U.S cannabis companies.

For our latest podcast we spoke with John Kagia, chief knowledge officer with New Frontier Data, for a bit more behind the research.

Following are takeaways from that conversation.

At the end of 2021 there was a dramatic shift in Europe, with three countries announcing a transition to recreational cannabis markets.

Two, Malta and Luxemburg, are both small countries that have been progressive in their cannabis policies. But it was more of a surprise when Germany, with a large market and a significant economy, announced it is planning to develop of a policy framework to initiate a legal recreational market.

“But now that the flag has been planted for the advent of recreational sales in Europe, we think you are going to start seeing more American companies, and not just in California, but particularly the multi-state operators who are well-capitalized, start planting seeds in Europe,” Kagia said.

Another noteworthy point made in the report was continued expansion of U.S. markets East, with New York, New Jersey, Pennsylvania and Virginia driving a large portion of the anticipated revenue growth out to 2025, which New Frontier estimates will reach near $12 billion.

“It’s really interesting to think about the way cannabis as an industry has moved from West to East. So up until essentially a couple of years ago when Massachusetts began the most robust market on the East Coast, recreational cannabis has largely been a phenomenon of the West Coast of the country,” he said. “But now that you have New York, New Jersey, and Virginia activating recreational sales, we think this is going to very consequentially shift the momentum of both investment of industry kind of operationalization and the unleashing of the demand in these large and consequential markets, moving that East.”

A diversifying product landscape is another piece of interesting news in the report, especially for consumers and those hoping to write more insurance on these emerging products.

The researchers believe a large group of prospective light cannabis consumers will drive innovation in low-dose and non-combustible products—the “Frappucinos” of cannabis products.

“We’ve seen a phenomenal kind of transformation of the consumer product landscape,” Kagia said. “For an industry that seven years ago was largely smoked flower and then things like homemade cannabis-infused brownies and blondies, the fact that we are now seeing products that span the gamut from very elegant and infused beverages with sophisticated flavor profiles, to water-soluble, fast-acting powders that you can mix into any beverage of your choice, I think it’s just reflective of the amount of innovation that has been born out of the legalization of this industry and the commercialization of the product manufacturing process.”

There are some low points of the report, such as the pace of investing in cannabis dropping off from 2021 in part due to “economic headwinds.”

These headwinds are unlikely to impact demand for products, which Kagia believes are “recession proof.” But available funding to grow and start new businesses may not be what is previously was.

“So, it’s not going to affect consumer demand. We continue to see very, very robust growth in consumer demand for the foreseeable future,” he said. “We just think it’s going to mean that for some of these new markets, like New York, New Jersey, Virginia, where they’re setting up operations right now and are going to need capital to really get those operations cooking with gas, then these new markets are the ones most likely to be acutely impacted by a reduction in the amount of available capital.”

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